Question

At the beginning of the year, Ann and Becky own equally all of the stock of Whitman, Inc., an S corporation. Whitman generates a $120,000 loss for the year. On the 189th day of the year, Ann sells her half of the Whitman stock to her son, Scott. Becky's stock basis is $41,300 How much of the Whitman loss belongs to Ann and Becky? In your computations, round any divisions to four decimal places. Round the final answer to the nearest dollar. Assume a 365 day year. Ann's share of Whitman's loss is $_______ and Becky's share of the loss is $______ However,______ loss is limited to $__________.

Answer 1

Answer:

1. Share of Ann's Loss: $31,048

2. Share of Becky's Loss: $60,000

3. Maximum Loss Allowed: $41,300

Explanation:

The total loss for the year is $120,000 and both Ann and Becky own 50% each.

1. Share of Ann's Loss:

Ann had ownership of Whitman Inc. for 189 days which means the 50% of the total loss would be further lessened by 189/365 factor.

Mathematically:

Ann's Loss = $1,20,000 * 50% *  (189/365) = $31,048 Loss

2. Share of Becky's Loss:

This means that the share of loss for Becky would be = $120,000 * 50%

= $60,000

3. Maximum Loss Allowed:

As the stock basis is $41,300, hence the maximum loss for Becky would be $41,300.